In re Appraisal of DFC Global Corp.

In the latest of a wave of appraisal opinions issued in Delaware, on August 1st, the Delaware Supreme Court reversed the highly-publicized DFC Global appraisal ruling, in DFC Global Corporation v. Muirfield Value Partners, L.P.No. 518, 2016 (Del. Ch. Aug. 1, 2017).

A recent string of decisions have found that the deal price of a merger, when there was an arm’s length transaction achieved after a well-structured and robust sales process, may be the best evidence of “fair value” of the merger proceeds at issue.  This decision reinforces this notion, although the Supreme Court declined to go so far as declaring a bright-line rule.

In DFC Global, the Delaware Supreme Court reversed a Court of Chancery ruling that payday lender DFC Global Corp. (“DFC” or the “Company”) was sold for an amount less than fair value in 2014.  Last year, Chancellor Bouchard determined that the fair value of the petitioners’ 4.6 million DFC shares was $10.21 each, a roughly 7 percent increase over the deal price.  For a discussion of the lower court’s decision, click here.

This was one of two decisions in 2016, where the Court of Chancery found fair value to be greater than the deal price.  In the other decision, In re: Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 31, 2016), Vice Chancellor Laster found fair value to be 22% greater than the deal price, which stood for the premise that deal price is not a fair value indicator in the context of a management-led buyout.  The Dell decision is similarly pending before the Delaware Supreme Court.  For a review of this decision, click here.

In reversing the Court of Chancery, the High Court found that reversible error had been committed by only according a one-third weighting of the deal price to the valuation of DFC’s common stock.  Under these circumstances, the deal price should have been accorded greater emphasis.  The Supreme Court further addressed the ability of the market to reflect regulatory impact on the stock price, and rejected the trial court’s conclusions that regulatory upheaval justified a downward weighting of the deal price.  The Supreme Court ordered the Court of Chancery to explain its weighting methodology on remand.

Stay tuned for the Delaware Supreme Court’s decision in Dell.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

John O’Toole writes:

In In re Appraisal of DFC Global Corp., the Court of Chancery conducted an in-depth analysis of three common valuation methodologies—discounted cash flow analysis, multiples-based comparable company analysis, and deal price.  After discussing how each methodology was and should be applied, Chancellor Bouchard ultimately determined that although “all three metrics suffer from various limitations” the fair value of the merger in question was best ascertained by weighting all three methods equally.

The Court’s opinion serves a number of useful purposes.  First, it provides a comprehensive overview of each the methodologies discussed.  Second, given the context in which the Court’s analysis was done, it offers guidance on how to best determine the fair value of a company following a deal consummated in a “tumultuous environment” where a company’s “future profitability and…viability” are at issue.


John O’Toole is a summer associate, resident in the firm’s Wilmington office.